Hiring your own family: nepotism or compassion?

There's a shocking amount of small companies where a sizable proportion of the workers are family of the owner. The most perplexing example was a tax consultant whose 4 employees were his wife, his daughter, his son-in-law and his sister.

I've often looked down upon this and have been quick to label it as nepotism, but if I was in a position to hire someone, wouldn't I prioritize someone I care about who was suffering to find acceptable working conditions in the labor market? Then again, this attitude generates a self-perpetuating problem where people can't access to job openings through their own merits and meritocracy, because the family members of the company owner can't find a job through their own merits and meritocracy.